Regulation and the Performance of Communication and Information Networks

Regulation and the Performance of Communication and Information Networks

Edited by Gerald R. Faulhaber, Gary Madden and Jeffrey Petchey

Digital markets worldwide are in rapid flux. The Internet and World Wide Web have traditionally evolved in a largely deregulated environment, but recently governments have shown great interest in this rapidly developing sector and are imposing regulations for a variety of reasons that are changing the shape of these industries. This book explores why the industrial organization of broadband ISPs, Internet backbone providers and content/application providers are in such turmoil.

Chapter 6: Sector Regulation and Investment Incentives: The European Experience

Harald Gruber

Subjects: innovation and technology, technology and ict

Extract

Harald Gruber INTRODUCTION This study looks at the track record of open access regulation in the European Union (EU) and relates it to investment behaviour. Regulatory reform in the sector is inspired by the notion of providing access to bottleneck elements in infrastructure precisely to induce further investment by new entrants. This is supposed to accelerate investment in the sector, which is traditionally determined by incumbent operators. The sector liberalisation programmes of the 1990s often also entailed the privatisation of incumbents (Newberry, 1999). Thus access to capital markets became easier for incumbents as they did not have to cope with any budget constraints of government. There is an ample economic literature that assesses the impact of regulation and investment behaviour (for a survey see Guthrie, 2006). For instance, Alesina et al. (2005) show that market entry regulation does have an important impact on investment. This is of relevance as investment crucially affects future prices, quantity and quality of products and services, whereas delays in investment may lead to substantial welfare costs. As an example, Hausman (1997), for the United States (US), showed that regulatory delays in introducing mobile telecommunications services in the early-1980s cost up to US$50 billion per annum (at 1994 values). Thus overall magnitudes involved with the telecommunications sector, which according to OECD (2009) accounts typically for 3-5 per cent of GDP can be quite substantial. The design of sector regulation for telecommunications, as for any other infrastructure sector, needs very careful weighting of factors that are...

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